Client Alert: Practical Considerations in the Purchase and Sale of Physician Practices

by Shumaker, Loop & Kendrick, LLP

Shumaker, Loop & Kendrick, LLP

The purchase and sale of a physician practice is a common transaction, especially as the trends of health care diversification and consolidation continue. While general business and legal knowledge regarding the sale of businesses applies to these transactions, addition­al health law and practical issues must be addressed in a physician practice sale. Consideration of the issues specific to the sale of physician practices beforehand can save both parties time, trouble, and money. The issues covered in this article include fraud and abuse concerns, licensure, ownership restrictions, medical records, managed care, and government payer issues. The authors are practicing lawyers in Florida with substantial experience in the sale of physician practices, so this article will have a Florida law perspective. Nonetheless, these issues exist, with some differences in laws, in every state. The intent of this article is not to be an exhaustive resource of all legal issues concerning physician prac­tice sales, but to help lawyers and parties to the transac­tion identify certain potential issues up front so that these issues can be explored further, before they delay or derail a transaction.

Fraud and Abuse Concerns

A variety of state and federal fraud and abuse laws may apply to the sale of a physician practice. For example, in Florida, if a component of the purchase of a practice appears to be in exchange for referrals of health care busi­ness, this could implicate both the Federal Anti-Kickback Law (“AKL”) for federally paid business, as well as the Florida Patient Brokering Act (“FPBA”) for any medical services no matter how paid.1 These are criminal penalty statutes that generally prohibit the provision of anything of value in exchange for patient referrals.2 This can become a complex issue because a purchaser of the practice may want to pay for “goodwill,” which can mean a lot of things, and/ or pay over time for the practice acquisition while the selling physician is still working at the practice or otherwise generating business for the practice. Fortunately, the AKL has a safe harbor for the “sale of practice,” which could exempt such payment arrangements from AKL if all the requirements are met.3 The FPBA provides that if the AKL safe harbor requirements are met, then the arrangement will not violate the FPBA.4 While the failure to meet a safe harbor does not necessarily mean that the AKL has been violated, a payment arrangement that fails to meet the safe harbor is not shielded from criminal liability.

The sale of practice safe harbor has specific requirements, in­cluding that the period from the date of the first agreement pertaining to the sale to the completion of the sale cannot be more than one year. Also, the physician selling the practice cannot be in a professional position to make referrals to, or oth­erwise generate business for, the purchaser after one year from the date of the first agreement relating to the sale.5 This safe harbor can be met if all payments are wrapped up in a year. These requirements need to be kept in mind when negotiating potential transition agreements in connection with the sale of a practice, and employment or consulting agreement with the selling physician after the sale. Furthermore, the safe harbor for the sale of a physician practice to a hospital (rather than another type of purchaser) has additional requirements that will need to be met.6

Other fraud and abuse concerns that the parties need to consid­er are whether any physician party (or their immediate family member) involved in the sale of a physician practice refers fed­erally paid business to the other party for “designated health services” as defined under the federal Stark law in any context.7 If such is the case, then all of the payment arrangements between the parties related to the sale must meet a pertinent Stark exception. This is because the Stark law is a strict liability civil penalty statute, thus, if it is implicated, all the requirements for an exception must be met in order for there not to be a violation. Depending upon the facts, the Stark Fair Market Value Exception to compensation arrangements may be applicable.8 This exception, among other things, requires that the compensation be set in advance, consistent with fair market value, and not determined in a manner that takes into account the volume or value of referrals or other business generated by the referring physician.9 The parties must also consider state fee splitting laws and state self-referral laws, as applicable.10

Ownership Restrictions

Another issue to consider is whether any legal restrictions exist on who can own a medical practice. In a majority of the states in the United States, the corporate practice of medicine doctrine places restrictions on persons other than licensed physicians owning medical practices. This doctrine appears in statutes, rules, and opinions and varies from state to state.

In Florida, there are no restrictions on who can own a medical practice. However, a special health care clinic license may be required for owners who are not licensed medical practitioners if the medical practice tenders charge for reimbursement to insurers or government payers and they do not meet one of the statutory exceptions.11 If a health care clinic license is required but not obtained, it is illegal to operate the medical practice and all charges and reimbursement claims are not compensable.12

Accordingly, initial questions that should be addressed in a physician practice transaction are whether the purchaser can legally own a medical practice and whether, in order to pur­chase the practice, the purchaser must obtain a special license, such as a health care clinic license. If such license is required, the parties need to plan for the time necessary to obtain such license, which could take several months to process. The par­ties may need to schedule the closing for the date the license is issued to the new owner. Alternatively, if permissible, some parties may enter into an interim management arrangement pending the issuance of the required license. If the parties en­ter into an interim management agreement, in order to satisfy state regulators and for general health care compliance, it is important that the management arrangement be fair market value, commercially reasonable, and implemented as stated in the agreement.


In addition to Florida health care clinic licensure previously discussed, the parties must consider whether the physician practice has other health care licenses that must be transferred or, if not transferrable, must be acquired by the purchaser in order to conduct the business. For example, depending upon the services being provided, a physician’s practice could have licenses for its laboratory, dispensing of prescription drugs, radioactive materials, biomedical waste, and laser registra­tions, as well as other licenses and registrations. Each of these licenses should be examined early in the negotiations of the transaction to determine whether the licenses are transfer­able and whether transfer or assignment is required, which may depend on whether the sale of the physician practice is a stock or membership interest transfer or whether its assets are being sold to a new purchaser entity. The definition of a change of ownership (commonly called a “CHOW”) must be assessed under each licensure law or registration.

Managed Care

Another important consideration in the purchase and sale of a physician practice is whether the practice has any valuable managed care contracts that can be transferred to the purchaser in an asset purchase or maintained by the practice in a stock or membership interest purchase. This is a very fact-specific analysis that depends on the structure of the physician practice sale and the terms of the managed care agreements.

Most parties assume that the managed care contracts will not transfer with the sale of a physician practice. However, in some instances, the purchase of a physician practice can be structured as a stock or membership interest purchase in order to preserve a valuable managed care contract. This may occur, for example, when the managed care contract is in the name of the legal entity whose stock or membership inter­ests are being transferred and the managed care contract is tied to that entity’s tax identification number. It is also helpful if the assignment clauses in the managed care contracts do not require payer consent for a change of ownership of the physician practice and do not include a change of ownership within the definition of “assignment” in these agreements.

It is important to note that if the purchaser structures the ac­quisition of a physician practice as a stock or membership interest purchase in order to attempt to maintain licenses or managed care contracts, then the purchaser should negotiate for more protections through extensive representations and warranties from the seller and strong indemnification after the closing for breach of the representations and warranties since taking over ownership of the entity (instead of just pur­chasing the assets through a new entity) creates more poten­tial liability for the new owner.

Government Payer Issues

Purchasers of physician practices should ask the seller wheth­er Medicare, Medicaid, or Tricare liabilities exist. This is es­pecially true if the purchaser plans to take over the Medicare number through, for example, a stock or membership interest purchase, or an assignment of the Medicare number. Succes­sor liability can cause a new and innocent owner of a Medi­care number to be required to pay for any Medicare over­payments and penalties of the prior owner of the Medicare number. Also, even if a practice acquisition is structured as a stock or membership interest purchase which may not trigger a new Medicare enrollment, purchasers should make sure that they satisfy any applicable notification requirements. For example, in a stock purchase, the Medicare provider must notify Medicare of the new owners of the practice within 30 days of the closing.

Potential successor liability in a stock or membership interest acquisition is one of the primary reasons an asset purchase is preferred by purchasers in physician practice transactions. If the purchaser of a physician practice intends to form a new entity and purchase the assets of a physician practice, they must obtain a new Medicare or other government payer number. Due to the time involved in obtaining these num­bers, the purchaser should start the process early and plan for any interruptions in payments.

Medical Records

Another important issue for the parties to address is how to handle the records of the physician practice. The purchas­er of a physician practice may or may not want the records of the prior owners. If the selling physician is retiring, for example, the purchaser of the practice may not want to have to maintain all of the selling physician’s voluminous practice records.

The seller, however, may want the purchaser to maintain the records for five years from the last patient contact as required under the Florida rules to the Medical Practice Act,13 or lon­ger, depending upon the requirements of the selling physi­cian’s malpractice insurance. The purchaser may only want the last three years of records because with HIPAA and Florida privacy laws, the maintenance of medical records can be more of a liability than an asset, especially if the records are so old that it is not likely that the patient will return to the practice for medical services after the sale of the practice to purchaser. These are important negotiating points and they can often be addressed in a separate patient records transfer agreement.

The foregoing is not an exhaustive list of the special issues applicable to the purchase and sale of a physician practice. However, it does address some of the issues peculiar to these transactions that the parties commonly have to manage. If the parties keep these issues in mind when contemplating the purchase and sale of a practice, the parties may be able to minimize some of the pitfalls that could derail the closing of their transaction, or a purchaser may be able to more quickly determine whether or not it is in the best interest of the purchaser to close on a particular transaction.

1 See, 42 U.S.C.A § 1320a-7b; Fla Stat. § 817.505.
2 Id.
3 42 C.F.R. § 1001.952.(e).
4 Fla. Stat. § 817.505(3)(a).
5 42 C.F.R § 1001.952(e).
6 Id.
7 42 C.F.R § 1395nn.
8 See, 42 C.F.R § 411.357(l).
9 Id.
10 See, e.g. Fla. Stats. § 458.331 (1)(i); 456.053.
11 See, Florida Statutes Chapter 400 Part X.
12 Fla Stat. § 400.9935(3).
13 Fla. Admin Code § 64 B8-10.002(2).

Written by:

Shumaker, Loop & Kendrick, LLP

Shumaker, Loop & Kendrick, LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.